Labor & Employment Law Daily Wrap Up, COVERAGE, LIABILITY—6th Cir.: Employee gets second shot at claim by suing parent company’s subsidiary, (Aug 31, 2026)

By Todd Harrison, J.D.

The subsidiary failed to show an exception to the general rule that nonparties to a litigation cannot be bound to a judgment.

Reversing a district court’s grant of a subsidiary corporation’s motion to dismiss based on privity and the application of a close-and-significant relationship test, the Sixth Circuit determined that the test used by some other circuits, and the one that was relied on by the lower court, was unpersuasive. Rather than looking to whether the parties have a close and significant relationship, the court found the proper question was whether the parties fit into one of the six traditional exceptions as set forth in Taylor v. Sturgell, 553 U.S. 880 (2008).Three of those exceptions were at issue in this instance, and the court concluded that none applied to the facts at hand (Williams v. Mastronardi Produce-USA, Inc., No. 25-1836 (6th Cir. Aug. 28, 2026)).

The employee in this case filed suit alleging claims for race and gender discrimination, harassment, and retaliation while working at a Mastronardi Produce-USA (USA) facility in Livonia, Michigan.

First lawsuit. This was the second lawsuit filed by the employee on these facts. In the first, she sued Mastronardi Produce, Ltd. (Canada), the parent company of USA, claiming Canada was her employer and had discriminated against her.

After the district court denied Canada’s motion to compel arbitration and dismiss the matter, it emailed the employee’s counsel, explaining that the lawsuit named the wrong entity and asked whether she would agree to substitute USA as the defendant. Her counsel refused and Canada moved for judgment on the pleadings, which the court converted into a motion for summary judgment.

Following supplemental briefing wherein Canada provided W-2 statements showing USA was the employee’s employer, the district court sided with Canada because the evidence established that Canada was not the employee’s employer, her complaint did not plead a joint-employer theory of liability, and any attempt to pierce the corporate veil based on Canada’s ownership of USA would fail on the record.

Second lawsuit. Shortly before the opinion was issued in the first case, the employee sued USA, asserting nearly identical factual allegations with the addition of a claim for a hostile work environment. USA moved to dismiss under FRCP 12(b)(6) arguing that claim preclusion barred the suit because USA and Canada are privies.

As part of its argument, USA asserted privity based on its control over Canada’s defense in the prior litigation, including by sharing defense counsel, offering to substitute as the proper defendant, providing evidence to establish that it was the employee’s employer, and submitting a declaration identifying the individuals named in the complaint as USA employees. The district court rejected this basis for privity and found the record did not support the claim that USA controlled the prior litigation.

Instead, the district court found privity between the companies by relying on the close-and-significant-relationship test used by some circuits. It based this finding on USA and Canada’s parent-subsidiary relationship, as well as equitable considerations that the employee had not established a sufficient reason to receive a “second bite at the apple.” Because the district court concluded that USA and Canada were privies and that the remaining elements of claim preclusion were satisfied, it granted USA’s motion to dismiss, which led to this appeal.

Taylor. Prior to the Supreme Court’s decision in Taylor, the court explained that it had grouped multiple exceptions to the general rule that nonparties to a litigation cannot be bound to a judgment into a single privity exception. In Taylor, the Supreme Court moved the analysis toward more precise categories, avoiding the term “privity” altogether and focused instead on whether one of the six common-law exceptions would allow for non-party claim preclusion. Thus, the question as framed by the court in this case was whether it fit into one of Taylor’s six exceptions justifying non-party claim preclusion.

Close and significant relationship. Prior to considering this question, the court noted that not every circuit has agreed with this reading of Taylor or with its framing of the question. In adopting the approach of the First and Eighth Circuits, the district court relied on whether the parties had a close and significant relationship. This was error, said the court, again stating that the question was whether the parties fit into one of the traditional exceptions.

Exceptions. Three exceptions were identified by the court as being at issue in this case: (1) the party asserting preclusion has a pre-existing substantive legal relationship with a party to the first litigation; (2) the nonparty assumed control of the prior litigation; and (3) the nonparty’s interests were “adequately represented by someone with the same interests who was a party to the suit.” The court addressed each in turn.

Common-law tradition. The first exception is the one that most resembles common-law privity, with the common-law tradition finding privity based on a successive relationship to property. Thus, the question before the court was whether the relationship between USA and Canada fit into this tradition. The court found that it did not for two reasons.

No identical interest. First, the parent-subsidiary relationship between USA and Canada does not create an identical interest in property such that the property right was already adjudicated in the first litigation. Nonmutual preclusion was property-based at common law because the interests were always identical or representative such that the party in the first action had the same interest or stood in the shoes of the nonparty, explained the court.

Parent companies and their wholly owned subsidiaries do not fit this bill, said the court. Each owns separate property, claims, liabilities, and contracts. In individual cases, these property interests could overlap where the companies are joint owners of some property. However, co-owners of property are not bound by judgments against the other, as they have distinct interests in property, not successive ones, similar to the distinction between joint tenants and tenants in common.

No property-based connection. Second, continued the court, even if the parties did have a substantive legal relationship giving them identical interests in some property, that property-based connection was not at issue in the prior litigation nor was it at issue here. The employee had alleged that USA and Canada were joint tortfeasors who discriminated against her. At common law, joint tortfeasors were not in privity for res judicata purposes.

Here, USA and Canada each have their own tort claims and liabilities, observed the court. Any successive property relationship between the two does not put them on the hook for each other’s tort liabilities. Thus, claim preclusion could not be justified based on USA and Canada’s pre-existing substantive legal relationship.

Control exception. Turning to the control exception, the court found that this likewise failed. This is a high bar requiring a relationship between the nonparty and controlled party akin to president-shareholder, parent-subsidiary, or liability insurer and its insured, explained the court. However, the court noted that the nature of the relationship was insufficient to establish control. So too were isolated steps such as retaining a lawyer, signing affidavits, contributing money to the first case, and communicating regarding the progress of the case.

Control, continued the court, is a question of fact, and it was incumbent on USA to show that there was no doubt that it had controlled the litigation, a bar that it failed to clear.

Under the facts of this case, it appeared that USA and Canada coordinated their legal strategy, and neither seemed to take control of the litigation as a whole. Further, the court noted that the parent-subsidiary relationship tended to cut against control in this case because USA was arguing that the subsidiary exercised control over the parent, not the other way around. Accordingly, the district court did not err in finding that the complaint failed to plead allegations suggesting that USA controlled the prior litigation.

Adequate-representation exception. Finally, the court found that, contrary to the district court’s determination, the adequate-representation exception could not justify preclusion. The district court had based its holding on three reasons: (1) a close and significant relationship between USA and Canada; (2) USA should have been joined in the first action; and (3) the employee did not offer good reasons that justified giving her a “second bite at the apple.” This was the wrong test, explained the appellate court, going on to state that, “Looking at the test laid out by our case law, none of these reasons matter.”

This case was not a class action and USA, the party seeking preclusion, did not point to any special procedures used by the district court in the first case to protect its interests, observed the appellate court. It also did not present evidence that Canada was litigating the first case in a representative capacity. Because USA satisfied neither part of the third element, the adequate-representation exception could not preclude the employee from bringing this suit, concluded the court.

Issue preclusion. At oral argument, USA asserted that even if claim preclusion did not bar the suit, issue preclusion did. This point was not raised before the district court, and any argument would be best left to the district court in the first instance, said the appellate court, though it noted that it was unsure how issue preclusion could bar the entire suit. Regardless, based on the above, the decision of the district court was reversed.

The case is No. 25-1836.

Judge: Bush, J.

Attorneys: Anita M. Washington (Bey & Associates) for Diamond Williams. Cynthia M. Filipovich (Clark Hill) for Mastronardi Produce-USA, Inc.

Companies: Mastronardi Produce-USA, Inc.

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